Like this:

Average CEO compensation was $14.1 million in 2012, using a measure of CEO pay that covers CEOs of the top 350 firms and includes the value of stock options exercised in a given year (“options realized”), up 12.7 percent since 2011 and 37.4 percent since 2009.

What this means over the long term is:

From 1978 to 2012, CEO compensation measured with options realized increased about 875 percent, a rise more than double stock market growth and substantially greater than the painfully slow 5.4 percent growth in a typical worker’s compensation over the same period.

Using the same measure of options-realized CEO pay, the CEO-to-worker compensation ratio was 20.1-to-1 in 1965 and 29.0-to-1 in 1978, grew to 122.6-to-1 in 1995, peaked at 383.4-to-1 in 2000, and was 272.9-to-1 in 2012, far higher than it was in the 1960s, 1970s, 1980s, or 1990s.

The bottom line: more and more surplus is being pumped out of the direct producers, and it’s being captured in larger and larger amounts by the Chief Executive Officers of major corporations.

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First, they might change the definition of income (from flows of value to consumption plus change in net worth). Second, they might change the data set (from the Internal Revenue Service to the Current Population Survey). Third, they might change the base (from tax units to size-adjusted households), what counts as income (to include taxes, transfers, health insurance, and capital gains), and how capital gains are calculated (from taxable realized capital gains to a yearly accrual measure, i.e., the increase or decrease in the value of capital assets in each year regardless of whether that asset was sold for a taxable realized gain). Finally, they might change the relevant time period (looking at the period from 1989 to 2007 instead of starting with 1979).

Well, that’s exactly the disappearing act Philip Armour, Richard V. Burkhauser, Jeff Larrimore [pdf] attempt in their latest paper. What they find, once they make all those changes, is that not only did inequality not increase in the decades preceding the Second Great Depression; it actually decreased during that period.

Here are the figures Thomas B. Edsall uses to illustrate what happens when we go from the standard account (of the Congressional Budget Office) to the Armour et al. version:

And voilà, as if by magic, inequality in the United States has been disappeared!